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Significant ‘Leverage’ at Stake

USTR Tai Warns Senate Against Hasty Rollback of China Tariffs

The fate of the Section 301 tariffs on Chinese imports, plus any new tariff exclusions process that may be imposed, “are under consideration for a decision as we speak right now,” U.S. Trade Representative Katherine Tai told a hearing Wednesday before the Senate Appropriations Subcommittee on Commerce. The Biden administration asked Congress for $76.54 million in USTR funding for fiscal 2023, an 8% increase from the $71 million appropriated in FY 2022.

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The FY 2022 omnibus spending bill that Congress passed in March contained a “directive” that USTR immediately create a new tariff exclusion process, said Subcommittee Chair Jeanne Shaheen, D-N.H. Now three months since the enactment of the spending package, Shaheen and ranking member Jerry Moran, R-Kan., expressed impatience with Tai that USTR hasn’t yet complied with the directive or published a timeline for when a new tariff exclusion process will be imposed.

The compounded workload of a new exclusions process was one of the reasons USTR gave the U.S. Court of International Trade for needing extra time to comply with the court’s remand order in the Section 301 litigation (see 2206210030).The court on Wednesday granted USTR a deadline extension to Aug. 1, half the 60-day extension it sought (see 2206220017).

The public debate recently on U.S. trade relations with China “has been very, very fixated on the issue of the tariffs,” including “what does it mean to remove the tariffs,” and “what does it mean for our leverage” with Beijing, Tai told Sen. Chris Coons, D-Del. A tariff exclusion is “the temporary and targeted relief from existing tariffs,” said Tai. “It does not remove the existing tariffs. That’s an important distinction that’s been lost in the public debate.”

Americans “will one day find ourselves on the other side of these challenges” of global inflation, said Tai. “I think it is very, very important that what we do now not undermine the need that we have to make ourselves more competitive and to defend our economic interests in a global system that for the past several decades has eroded our leadership in many, many different areas.”

The Section 301 tariffs on China “are, in my view, a significant piece of leverage” against Beijing, Tai told Sen. Bill Hagerty, R-Tenn., who asked Tai whether she thinks removing the tariffs would embolden the Chinese to double down on their unfair trade practices. “A trade negotiator never walks away from leverage,” she responded.

The big question confronting the U.S. is how to “convert this leverage into a strategic program that will strengthen American competitiveness and defend our interests in a global economy in which China will continue to play,” said Tai. “We need to use our tools more effectively. We need new tools. We need to bring in an entirely new approach. I think all of those things are built on the back of the tools that we have in our hands right now.”

Hagerty said he doesn’t buy the argument that removing the tariffs will curb inflation. “Inflation didn’t take off when the tariffs were imposed,” he said. “It stayed at or below 2% when the tariffs were originally imposed, so I think that’s a false argument.” Hagerty told Tai: “I appreciate the fact that you appreciate the leverage that you have, and I encourage you to use it.”